US Market Turmoil as Global Economic Worries Intensify

Monday saw significant drops in US stock markets following declines in Europe and Asia, fueled by growing concerns about a potential slowdown in the American economy.

The technology-heavy Nasdaq index opened with a 6.3% loss after a sharp decline late last week but managed to recover some of its losses during the day. Other major US indexes also opened with steep declines, while Asian and European markets experienced substantial drops, including a 12.4% fall in Japan’s Nikkei 225. These market movements were triggered by weak US job data released on Friday, which raised alarms about the state of the world’s largest economy.

Last week, the US Federal Reserve decided not to cut interest rates, contrasting with actions taken by other central banks, such as the Bank of England. There were also concerns about the valuation of major technology firms, particularly those heavily invested in artificial intelligence. Intel’s recent announcement of major layoffs and disappointing financial results, along with speculation about Nvidia potentially delaying its latest AI chip launch, contributed to market unease.

The market turmoil followed Friday’s announcement from the US, revealing lower-than-expected job creation and an increase in the unemployment rate from 4.1% to 4.3%. These updates added to recent signs of economic cooling, such as the Federal Reserve’s decision to hold interest rates steady.

The Dow Jones index, comprising 30 major US companies, had dropped 2.6% after recovering some losses. The Nasdaq was down 3.4%. The S&P 500 declined by 3%. Major tech stocks were hit hard, with Nvidia down 6.3%, Amazon falling 4.1%, and Apple decreasing by 4.8%. In Europe, Paris’ CAC-40 managed to trim its losses to end 1.4% lower, while Frankfurt’s DAX and the UK’s FTSE 100 each lost about 2%.

The market downturn began on Friday after weaker-than-expected US job numbers led to speculation about an economic slowdown. In July, US employers added only 114,000 jobs, far fewer than anticipated, and the unemployment rate rose from 4.1% to 4.3%. These figures raised concerns that the long-running jobs boom in the US might be waning and sparked speculation about the timing and extent of future interest rate cuts by the Federal Reserve.

Simon French, chief economist at Panmure Liberum, noted that it was unclear whether the jobs figures were an anomaly due to Hurricane Beryl, a Category 5 storm that hit parts of the Gulf Coast in July, or if they signaled a broader trend of reduced hiring by companies. Recent data showed that the US economy grew at an annual rate of 2.8% in the three months ending in June, which is stronger than most developed countries.

The turmoil in US markets has spread globally, raising fears of contagion. As the Nikkei fell in Japan, stock markets in Taiwan, South Korea, India, Australia, Hong Kong, and Shanghai also dropped between 1.4% and 8% on Monday. Japan’s market issues partly stemmed from the yen strengthening against the US dollar after the Bank of Japan raised interest rates last week, making Japanese stocks and goods more expensive for foreign investors. Additionally, inflation in Japan rose more than expected in June, and the economy contracted in the first quarter of the year.

Europe’s Reaction

The potential slowdown of the world’s largest economy caused London’s FTSE 100 to drop by 2.4% soon after trading began, losing 193 points from its previous level of 7,982. By the day’s close, it had fallen by 187 points or 2.1%.

The Euronext 100 Index across Europe plunged 3.5% at the start of the day, while Frankfurt’s Dax and France’s CAC 40 saw declines of 3% and 2.6%, respectively, upon opening. These indexes ended the day down 1.9%, 3.5%, and 1.6%, respectively.

Additionally, European markets were reacting to diminished optimism about the impact of artificial intelligence and concerns about potential conflict in the Middle East driving up oil prices.

Tan Boon Heng from Mizuho Bank in Singapore explained that there were fears about higher unemployment limiting spending, further restricting hiring, incomes, and overall economic activity, potentially leading to a recession. Analysts at JPMorgan indicated that they now estimate a 50% chance of the US economy entering a recession.

Chris Beauchamp, IG’s chief market analyst, commented to the Associated Press that the markets were in “absolute turmoil” due to the Nikkei 225’s largest single-day drop since 1987, erasing the index’s gains for the year. He predicted that US stock exchanges would also likely see sharp declines in the coming days, emphasizing that such moves typically don’t resolve in a single day and that a volatile summer was likely ahead.

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